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from the legal desk Dan Leduc The name is Bonds... Performance & Labour and Material Payment Bonds Part One It may be easiest to think of bonds as forms of guarantee, largely having the same legal characteristics as, say, a personal guarantee you may give to a bank, where the guarantor would be the surety (otherwise known as the bonding company) that, in the case of a performance bond, guarantees the work will be performed on a continuing default by the general contractor; or, in the case of a labour and material payment bond, the surety effectively guarantees payment to those who are unpaid by the bond’s principal. Owner’s responsibilities in the bonding process Because a bond is a form of financial protection against loss in the event that a bonded contractor defaults on his obligations, it is in the owner’s best interests to ensure the bond documentation is in order . That is, the bond should be signed, it should be of the correct value, and it should be affixed with the seal of the general contractor . The owner has an obligation to ensure a bond is valid and enforceable. The owner also has the onus of declaring the contractor in default for it to require the surety company to perform its obligations under the bond. In the case of Paul D’Aoust Construction Ltd. v Markel Insurance Co. of Canada 1 (an Ottawa decision that made its way to the Supreme Court of Canada), a performance bond had been signed by a broker of the surety and the principal, but the bond was invalid and ineffective because it had not been delivered to the owner . In deciding D’Aoust, Judge Rosenberg explained the starting point in determining validity was in understanding the nature of a bond. He cited the text “Scott and Reynolds on Surety Bonds”: A bond is simply a deed (a deed being a document in writing on paper which is signed, sealed and delivered...) whereby one person undertakes to pay a specified sum of money to another , either immediately or at a future date. 2 Get focus-free imaging with IR-OptiFlex Thermal Imaging Made Easy. One-touch manual focus for close spaces Although the bonding company had intended to honour the bond, Rosenberg explained that, since a deed required delivery to be valid, the lack of validity of a bond was sufficient to make it invalid and to make the examination of the bond itself unnecessary. He stated: The failure to effect delivery of the bond in this case was fundamental and, therefore, the obligations imposed in the bond never came into effect. There is, therefore, no occasion to look to the actual wording of the bond itself. 3 He added that “no special form or observance is necessary for the delivery of a deed, and it may be in words or by conduct”. 4 However, on the basis of the decision in D’Aoust, it is clear the owner bears the responsibility of satisfying itself that delivery of the bond had been made and that, therefore, the bond has come into effect. So the owner’s obligations are to itself in light of the D’Aoust decision. However, that decision dealt with a performance bond and as we know, performance bonds do not get trades paid. Although there is little caselaw on this specific point, it can be suggested that an owner could owe a duty of care to a subcontractor to obtain a valid and subsisting labour and material payment bond. It is reasonably foreseeable that the failure to do so could prejudice a subcontractor’s ability to recover monies owed to it, and the failure of an owner to obtain a labour and material payment bond could be characterized as negligence on the owner’s part. General contractor’s responsibilities in the bonding process The GC’s obligations will generally be contractual in respect of bonds and, typically, bonds are a deliverable required at the outset of most constructions contracts. As for trying to characterize a general contractor’s failure to provide a bond as negligence (usually as a subcontractor looking to the labour and material payment bond for payment), then you are likely dealing with an insolvent general contractor. As such, pursuing the general contractor for negligence is not a real option. AutoBlend identifies problem areas faster Point-and-shoot easy Dan Leduc is a partner at Norton Rose LLP and co-c hair of the firm’s Canadian Construction Law Practice Group. He is frequently called upon to advise and represent owners, engineers, subcontractors, suppliers and builders in such front-end services as contract review, tender issues and general construction matters, as well as in litigation and arbitration. Dan can be reached at (613) 780-1536 or dan.leduc@nortonrose.com. New from Fluke: Our easiest-to-use thermal imagers ever. With simple, one-handed point-and shoot operation. And revolutionary IR-OptiFlex focus system for focus-free images at four feet and beyond. With Fluke you spend less time finding problems and more time fixing them. Thermal imaging has never been easier. See the new imagers in action at www.flukecanada.ca/madeeasy Notes 1. [1999] O.J. No. 1837 (C.A.). 2. Ibid. at para. 68, cited from “Scott and Reynolds on Surety Bonds” s. 2.3(a) at 2-14. 3. Ibid. at para. 67. 4. Ibid. at para. 69. 10 • March 2012 • www.EBMag.com
Dave Smith mind your safety Lethal management It is difficult to be an exceptional manager. It takes experience, training, desire, dedication and human understanding. As a manager, I have too often been lenient when I should have been lethal and, unfortunately, many times lethal when I should have been lenient. I see this in other managers, and it is the lethal that I write about here. We were doing a high-voltage maintenance course at a mill in Ontario and, as a class project, the electrical supervisor wrote a switching order to take out a set of 13.8 switchgear for an upcoming project. He showed us his switching order with a single-line diagram indicating the grounds he was going to put into place; it was well done, and we said so. He was incredibly happy when he went off to the engineering manager but, 20 minutes later, he came back very disturbed. On the single-line diagram, the manager had crossed out two of the grounds in big, bold, red marker, saying he did not need them. The supervisor now had a conflict with his superior and, yes, you can draw the safety card, but what will transpire in three months? This manager, who should have been lenient at that moment in allowing the installation of the extra grounds, was lethal. His previously highly motivated electrical supervisor was now unmotivated and the energized class culture changed immediately as the other students sympathized with their supervisor, with many derogatory comments about the manager and his commitment (or lack thereof) to safety. If you have ever been to a western Canadian electrical safety conference, chances are you have heard Paul Hebert speak. When Paul, I won’t try to tell you the rest of Paul’s story but, when he speaks, he always wears short pants so you can see his two artificial legs. a utility lineman, comes onto the stage, it is easy to see his artificial arm, but the damage done to his remaining limb is not as apparent. He demonstrates this hand at the podium, showing the thumb and remaining fingers, and describes his difficulty navigating through everyday life—even being unable to grasp a normal hamburger. In September 1989, Paul and a supervisor were working in a remote area repairing downed lines from a major storm. In preparation for the work they were going to do, Paul asked, “Shouldn’t we put grounds on this?” and the supervisor replied, “No, we won’t be that long”. Several miles away, someone tried to contact them, but they were out of radio range; a decision was made that they must have finished their work and left their locks on. Paul’s lock was cut off and the disconnect switch closed while Paul was hanging on a downed high-voltage line. I won’t try to tell you the rest of Paul’s story but, when he speaks, he always wears short pants so you can see his two artificial legs. His story is compelling and describes a life no one wants to live. Being around a two-year old who has mastered the word “No!” makes it pretty clear that we humans seem to be hardwired to argue. I have lost track of the examples students have given to me over the years where one worker made a suggestion that would make a situation safer yet someone else took an immediate and opposite position to argue against it. This is such a natural human reaction that psychologist Kurt Lewin’s Force Field Analysis principle is essential for managers to understand group dynamics and the forces that help or hinder the achievement of goals. Recent research has proven that the old Heinrich Safety Pyramid concept has proven invalid (bit.ly/qWDtlS). Organizations have reduced the number of close calls and minor accidents yet major accidents continue at the same rate. Paul’s life has been immeasurably lessened but the lethal supervisor will also have lived a life of regrets—and his company has been paying every year since. To prevent this, you need to develop a culture where suggestions that make things safer will be met with discussion and analysis rather than a force field of automatic arguing. Until next time, be ready, be careful and be safe.© Canada Training Group has been providing consulting services to industry since 1980; Dave Smith, the president, can be reached at davesmith@canada-training-group.ca. At www.canada-training-group.ca, you will find this article (and others) available to you. Feel free to use them to support your own safety program and other initiatives. DANGERS OFdirtypower Who is your front line of defense? SurgePure stops catastrophic failures of computers, automation controls, HVAC systems, electronic lighting controls, office equipment and factory machinery. Prevents "data loss" and glitches on communications lines, and reduces long term degradation and extends the life of electronic equipment, motors and electrical system components. Highest Surge Capacities in the Industry Non-Degrading Single Element Design U.S.A. 1.866.959.7873 www.surgepure.com Canada 1.877.833.5440 www.surgepure.ca www.EBMag.com • March 2012 • 11
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